Several factors are responsible for the financial restructuring of
companies. Some of these factors include poor performance of one or
more units within a company, or strategic opportunities such as mergers
and acquisitions. Financial restructuring begins with company valuation.
The valuation takes into account the company value before and after
restructuring. During the valuation process, it is important to consider
means and obstacles to company progress and assign stakeholders for
company processes. The minimum value to be considered during valuation
is liquidation value.
For firms looking to restructure, it is
important to remember that a company’s finances are a mix of debt and
equity. Hence, restructuring involves working out the right proportion
of debt and equity for the company’s finances. The financial
restructuring team should attempt to achieve the lowest weighted average
cost of capital, and the highest average return earned per dollar of
investment in working capital.
About the Author:
J. Randall Waterfield is managing director of Cappello Waterfield & Co., a firm
focused on providing corporate advisory and financial restructuring
services to both private and public companies.